What if This Time is Different?

What if This Time is Different?What if, before the world ever heard of coronavirus, every valuation multiple suggested the U.S. stock market was one of the most expensive in history? What if these valuations assumed – and required – continued economic growth, robust increases in company earnings, and sustained and substantial stock buybacks? What if those assumptions were completely wrong?

What if the current stock market rally assumes a “Vshaped” economic recovery with lockdowns ending soon, companies rehiring employees, pharmaceutical companies developing a vaccine, and a quick “return to normalcy”? What if those assumptions are wrong?

What if lockdowns drag out, companies enter bankruptcy en masse, unemployment remains high, and households stop buying? What if retail businesses only reopen with limited capacity? What if retail businesses cannot be profitable at such capacity levels? What if landlords stop receiving rents from tenants and start losing tenants? What if some industries like hospitality and airlines take years to recover? What if even hospitals lose money since elective surgeries are nonexistent? What if even universities bleed red ink as full-tuition paying foreign students don’t return? What if other such industries perceived to be immune from this crisis fail as their most lucrative revenue streams cease to exist?

What if banks refuse to grant forbearance to landlords and companies? What if defaults skyrocket? What if banks are incapable of even understanding the damage to their loan portfolio? What if banks raise lending standards so few qualify for loans? What if banks start charging higher interest rates as they perceive increased risk? What if banks have already increased rates on their variable loans? What if banks simply stop lending? What if banks fail?

What if public pension funds fail and states cannot bail them out? What if cities file for bankruptcy? What if states must sustain prolonged unemployment benefits? What if state governments’ fiscal measures create debt levels which can never be repaid? What if these debt levels increase so much that their interest payments cannot be serviced? What if states go bankrupt?

What if the Federal Government’s own estimates are right, and it borrows almost $4 trillion this year? What if it’s more? What if the U.S. government is already insolvent? What if the lender of last resort really is the last resort? What if printing more green pieces of paper doesn’t solve these issues?

What if a recession actually started before coronavirus had infected anyone? What if an inverted yield curve, a deteriorating Cass Freight Index, and an unprecedented breakdown in the repo market suggest a recession started in late 2019 or was imminent in early 2020?

What if such a recession, rather than being a typical downturn, was one of monumental magnitude – even worse than that of the Great Recession? What if recessions are caused by increases in the money supply which artificially lower interest rates, thereby deceiving individuals and companies into making poor investment decisions? What if the Federal Reserve’s unprecedented (at the time) monetary expansion from the 2008 crisis sowed the seeds of an even greater recession today? What if all of this is happening in addition to the economic damage caused by coronavirus containment measures? What if such a recession was just getting started? What if it lasts for years?

What if a comparison of today’s financial market valuations with deteriorating economic fundamentals suggests this is greatest stock market bubble in all of U.S. history? What if bonds are not safe when money is lent to bankrupt companies and insolvent governments? What if bonds don’t protect an investment portfolio? What if stocks and bonds prove highly correlated – to the downside?

What if, after an initial bout of deflation, inflation kicks into overdrive? What if the 1970s suggest stocks and bonds can lose ground for a decade or more relative to inflation? What if most financial advisors only give lip service to inflation risk to their clients? What if their clients own no precious metals, farmland, rental real estate, or cryptocurrencies to protect them from inflation?

What if mainstream financial advisors were ultimately wrong when they said “This time is different” during the heady bull market years? What if they advise clients never to panic and never to sell? What if it is time to panic? What if it is time to sell?

What if equities crash and it takes years to recover like it has seven times over the last 100 years? What if the stock market collapses and it takes over 20 years to break even as it did after 1929? What if retirement-age workers can no longer afford to retire?

What if this time is not different?

What if most financial advisors are telling clients to buy the dip? What if they are telling investors the markets always rebound and the economy always quickly recovers? What if investors are conditioned to believe them based upon their experience with the 2008 crisis?